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Have you misinterpreted the 10 days grace clause?

Legal advice provided to the settlement industry has revealed that the ’10 days grace’ clause in the Joint Form of General Conditions has a very limited scope.

Have you misinterpreted this clause? Read on for more info.

In the past, there have been cases of agents telling buyers that if the buyer found a fault in the property after settlement, they would have 10 days to seek compensation from the seller, under clause 15 of the Joint Form of General Conditions.

For example, earlier this year a buyer discovered that the hot water system was not working during the final inspection, and the real estate agent told them that they would have a ’10 days grace’ period in which to report any such problems after settlement.

However, an article in the AICWA newsletter written by MGB Legal has indicated that clause 15 of the Joint Form of General Conditions would not apply in this case – and in fact, the clause has very limited application.

According to the Joint Form of General Conditions, clause 15 applies to “an error or misdescription in the Contract relating to (a) a physical structure or physical feature of the Property; (b) a boundary of the Property; or (c) the area of the Land.”

According to MGB Legal, this does not include a warranty that items are in good working order, as was implied by the agent in the case study above. Nor does it necessarily cover errors in supporting material.

What the clause does cover are errors or misdescriptions relating to physical structures or features of the property, the boundary of the property, or the area of the land – but only if these errors or misdescriptions are made in the contract.

The article gave the example that “A physical structure or physical feature of the property may be something such as the existence of a particular structure. You might have an error or misdescription in the Contract if the Contract states that the carport is part of the premises, when in fact it is a strata premises and it rests on common property.”

Because clause 15 is so specific, errors and misdescriptions are very uncommon. The most common faults found after settlement – such as faulty appliances or missing chattels – are not covered by clause 15.

With that in mind, remember that the best time to address problems with a property is before settlement. By dealing with issues promptly (and keeping your settlement agent in the loop), buyers and sellers alike can enjoy a smoother, more enjoyable settlement experience.